Refco tanks

Refco Logo2.jpgAs predicted here last week, Refco Inc. filed a chapter 11 case yesterday and announced late in the evening that an investment consortium led by private-equity fund J.C. Flowers & Co. LLC and Texas Pacific Group would seek Bankruptcy Court approval of a bid to buy Refco’s key regulated futures-trading unit
The regulated futures business that the consortium wants is a key component of Refco. Before the run on bank with regard to Refco’s business over the past week, the firm was one of the most active trading firms in the commodities and financial futures markets. Over the past week, Refco customers — typically hedge funds, individuals and institutions — had removed at least 20% of the assets from Refco’s futures brokerage business, which previously had about $4.1 billion in customer assets under management. That’s a big run on the bank in anyone’s book.

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It’s not easy being a Stros fan

pujols and Lidge.jpgI get up early for eight Tuesdays in the fall and spring to help cook breakfast for a 300 member men’s group at my family’s church, and the kitchen crew I work with is a pretty tough crowd. So, after the Cardinals’ Albert Pujols stuck the pin in the Stros’ World Series balloon last night, the subject of the comments from the crew members this morning were focused on the Stros, particularly Stros Manager Phil Garner’s dubious decision to pitch to Pujols — rather than walk him — with a two run lead and two out in the top of the ninth inning of the potential National League Championship Series clinching game:

“Of course, you have to pitch to Pujols in that situation,” noted one crew member with more than a touch of sarcasm. “Sanders and Mabry (the much lesser batters who followed Pujols) could have knocked in even more runs.”
“What, not pitch to the best hitter in the National League with two on, two out, a two run lead in the top of the ninth and a World Series on the line?” commented another crew member with an equal amount of sarcasm. “Hell, he was 0 for 4.”
“First pitch (a swinging stike in the dirt) good. Second pitch (over the railroad track over the left field pavilion) bad.”
“One good thing out of this is that Manager Garner has decided to seek some professional assistance. Word has it that he has set up an appointment today with (0-5 Houston Texans’ head coach) Dom Capers.”
“You know, I don’t think the Texans (0-5) are going to make the playoffs this season.”

Add your own comment. It’s good therapy. ;^)

Does Phil Garner read Clear Thinkers?

Garner2.jpgThis NY Times article from over the weekend contains the following blurb from Stros manager, Phil Garner:

Phil Garner praised the Astros’ owner, Drayton McLane, for his willingness to re-sign Carlos Beltran after his scintillating 2004 postseason, but he said he thought the team was better off this season without him. The rookie Willy Taveras has emerged as a fine defensive center fielder and has performed better at the plate than expected.

“I didn’t necessarily think it was a big loss,” Garner said before Saturday’s game. “One of my things that I feel is, if you put so much of your capital in any one player, it’s going to hurt you, in my opinion. So I think it might have been a little bit of a blessing.”

Did Phil read that here first?
By the way, that Taveras has performed well defensively and has hit better than expected is true, although that latter point is a bit frightening, given how bad Taveras’ hitting has been.

It’s a small world in auditing

GrantThorntonLogo.gifAs accounting firm Grant Thornton, LLP reviews its liability insurance limits in connection with its audits of Refco, a couple of interesting facts are emerging.
Turns out that Refco hired Grant Thornton in 2002 to replace Arthur Andersen as the company’s auditor as Andersen was collapsing under the pressure of its criminal indictment in connection with the Enron case. Moreover, the lead partner on Grant Thornton’s audits of Refco is Mark Ramler, who also had been the lead partner on Andersen’s audits of Refco.
Despite that juicy grist for the plaintiffs’ lawyers mill, Grant Thornton apparently discovered the questionable arrangement that has led to the current run on the bank with regard to Refco.

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Finessing Witness Intimidation

When Don Corleone wanted to intimidate someone, he would “make them an offer that they could not refuse.”

Taking a page from the Don’s book, when the Enron Task Force wants to intimidate a favorable defense witness from testifying in an Enron-related criminal case, the Task Force simply “informs” the witness that he or she is a co-conspirator with an Enron criminal defendant and might be indicted if they assist the defense of that defendant.

That’s certainly the impression one gets from this Mary Flood/Houston Chronicle article that reports on the Task Force’s response to the earlier motion of former key Enron executives Kenneth Lay, Jeff Skilling, and Richard Causey to dismiss the criminal case against them because of the Task Force’s misconduct in intimidating prospective defense witnesses.

The Task Force apparently gave a copy of its response to Ms. Flood before they filed it on the electronic docket of the case, so a copy of the pleading is not yet available to the general public. I will post a copy when it becomes available.

According to Ms. Flood’s review of the Task Force’s response, the Task Force concentrates on the fact that the defendants’ motion relies to a substantial degree on hearsay statements of attorneys who are representing the prospective defense witnesses who the Task Force has threatened.

Of course, the fact that the lawyers for intimidated witnesses will only disclose such threats on a confidential basis is not particularly surprising, given the risk of Task Force retribution if the lawyers were to implicate their clients publicly.

Nevertheless, it’s reasonably certain from prior testimony of two witnesses (here and here) and the Task Force’s unprecedented fingering of 114 co-conspirators in the case that witness intimidation is taking place, so U.S. District Judge Sim Lake clearly has a problem confronting him and he is struggling to figure out how to deal with it.

Ms. Flood’s article does note additional information about a documented incident of intimidation that was referred to in the Lay-Skilling-Causey motion, but much of the information was redacted in the motion.

The incident referred to in the Lay-Skilling-Causey motion involved an email from a Task Force prosecutor to a defense attorney for a cooperating government witness in one of the Enron cases that told the lawyer for the cooperating witness to direct his co-counsel to stop talking to Mr. Skilling’s lawyer or that he should “get rid” of him. The Lay-Skilling-Causey motion does not name the identity of the Task Force member who sent the email or the attorney to whom it was sent.

Ms. Flood reports that the Task Force’s response provides that information. Former Enron Task Force director Andrew Weissmann sent the email to “a Washington, D.C., area lawyer for former Enron official Ken Rice.” The docket of Mr. Rice’s case reflects that attorney to be William Dolan, but the more interesting revelation is Mr. Dolan’s co-counsel in defending Mr. Rice — i.e., Houston-based criminal defense Dan Cogdell.

H’mm, isn’t that a coincidence. Mr. Cogdell happens to be the attorney who successfully defended the only defendant in the Nigerian Barge case — former Enron accountant Sheila Kahanek — who was acquitted in the trial of that case.

Mr. Rice is the former Enron Broadband executive who testified falsely during the trial of the Enron Broadband case after copping a plea with the Task Force in the face of an almost certain conviction on insider trading charges that are unrelated to either the Broadband case or the Lay-Skilling-Causey case.

Mr. Rice — whose plea bargain allows the Task Force to withdraw its support for a light sentence if fails to “cooperate” with the Task Force in various Enron-related criminal trials — is expected to be a key prosecution witness in the upcoming trial of the Lay-Skilling-Causey case.

Accordingly, Mr. Weissmann’s email during the early stages of the Enron Broadband trial appears to be a clear attempt at least to remind — if not outright threaten — Rice’s counsel that Rice’s plea deal could be at risk unless Cogdell quit talking with Mr. Skilling’s counsel. Even more telling is that Weissman’s threatening email to Rice’s counsel was sent almost immediately after the Enron Broadband defense had caught Rice providing false testimony on behalf of the prosecution during the Enron Broadband trial.

Thus, rather than seeking the truth of whether the defendants committed crimes at Enron, the Task Force suppresses exculpatory testimony for the defendants by fingering over a hundred alleged co-conspirators, threatens defense witnesses, and threatens a cooperating witness with breach of his plea bargain if his counsel even chats with defense counsel for Mr. Skilling.

Does anyone really believe that Messrs. Lay, Skilling and Causey — already facing a highly anti-Enron environment that the prosecution has helped fuel — can receive a fair trial under these circumstances? And is this really the way that we want our Justice Department to be operating?

2005 Weekly local football review

VinceYoung.jpgTexas Longhorns 42 Colorado 17

Vince Young prevents the Horns (6-0) from having a post-OU letdown as the Horns cruise over what probably is the best Big 12 North team. The win sets up what will certainly be one of the most entertaining games of the Big 12 season next Saturday in Austin as the Horns host 10th-ranked Texas Tech, which is also 6-0. My sense is that Horns’ Defensive Coordinator Gene Chizik is licking his chops at the opportunity to unleash the Horns’ defensive unit against Tech’s idiosyncratic pass-happy offense, but this one should be fun.

Seahawks 42 Texans 10

So, who do you think the Texans should take as the first pick in the 2006 NFL Draft? At this point, it’s inconceivable to me that the Texans could win a game this season absent the other team simply laying down and letting them do so. And then the Texans might trip and screw it up, anyway. The team simply does not have enough NFL-quality players, and Head Coach Dom Capers has clearly lost the team — the Texans gave up 320 rushing yards in an NFL game, had 13 penalties for 95 yards, and the offensive line couldn’t even line up without a penalty during the first quarter! Accordingly, Texans owner Bob McNair is facing the unsettling prospect of cleaning house in his football operation — from General Manager Charlie Casserly on down — less than four years after the franchise played its first game. Ugh.

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Whew!

BerkmanandLidge.jpgOnce again, the Stros are within a game of the first World Series in franchise history.
I take back everything I said about Wily Taveras, who in a reserve role scored the winning run and made a clutch catch on Tal’s Hill to close out the top of the eighth.
Adam Everett is simply the smoothest shortstop ever to wear a Stros uniform, and Eric Bruntlett can flat out trigger a double-play.
And Brandon Backe — while a below-average National League starting pitcher — has a far above-average heart.
By the way, the Stros have now won three out of four games in the NLCS by scoring a total of 13 runs. After scoring five runs in the first five innings of the NLCS, the Cardinals have scored a total of five runs over the past 30 innings.

Southwest, you’re welcome here

southwest_airlines.gifThis NY Sunday Times article provides a good overview of the challenges that Southwest Airlines faces in the rough and tumble airline business as its fuel hedging strategy (noted in earlier posts here and here) fades and it faces the prospect of dealing with the higher fuel prices that its less-liquid competition has been dealing with over the past year and a half.
The analysis of Southwest’s business prospects is interesting, but even more so is the blurb at the end of the article that Dallas, Southwest’s home base, is not being particularly supportive in Southwest’s effort to have Congress repeal the Wright Amendment (earlier posts here, here and here), which restricts Southwest’s routes in and out of its Dallas Love Field hub. The article notes that, if the Wright Amendment is not repealed, it makes sense for Southwest to look for a new corporate home where their business is growing as opposed to the restricted nature of its current Dallas operation.
Mayor White, get on this one — Southwest Airlines in Houston is a natural fit.

Help me understand this

merrill-lynch.gifDaniel L. Gordon, Merrill Lynch’s former chief energy trader, was sentenced Friday to 3 1/2 years in prison after admitting that he had stolen $43 million from the brokerage firm. Although the prosecution was only requesting a couple of years in the pokey, the judge decided that the longer sentence was called for in light of the nature and size of the theft.
I’m all right with that. But how on earth does one reconcile that sentence with the comparable sentences handed down to these two (here and here) former Merrill Lynch executives, neither of whom profited a lick from the transaction that is the basis of their alleged crime?
And when you get done trying to figure that one out, try reconciling Mr. Gordon’s three year sentence with the 24 year sentence that is being endured by Jamie Olis, who also did not receive a dime from the transaction that is the basis of his alleged crime.
Let’s see. Embezzle $43 million and, if you get caught, cop a plea and serve 3 1/2 years. Or, do your job, don’t embezzle a cent, defend your innocence against criminal charges even when your employer serves you up as a sacrificial lamb so that the employer can avoid criminal charges, and then endure either as long, or much longer, a sentence if you are convicted.
H’mm. Doesn’t seem like much of a choice to me. Something is seriously out of whack here.

Interesting conversation about the Stros today

Chris Burke2.jpgWhile riding to the Stros-Cardinals Game 3 of the National League Championship Series today, one of my sons asked whether I thought that Stros manager Phil Garner would play red-hot Chris Burke, who has continued to hit well after his walk-off yak last week to win the National League Division Series over the Braves.

“No,” I said. “He’ll probably play Lamb at first base today because he hits (St. Louis pitcher Matt) Morris well. That means Berkman moves to left field and Burke sits. What Garner should do is put Burke in centerfield and bench Taveras, who is a marginal player. But he will never do that because everyone thinks Taveras is good, which he is not.”

So, what does Phil Garner do? He starts Burke in centerfield in place of Taveras.
Stros win a 4-3 nailbiter to take a 2-1 lead in the National League Championship Series against the Cards.